Ron and Sue Mortensen: The new reality

The corn market has been spending the past week getting used to the tight supply/demand situation presented in the January USDA reports.

The ethanol situation is still the main topic of conversation, but the yields in the final crop production report were disappointing, and mean yield estimates for the future (many estimates have been around 157 bushels) may need to be reduced. It makes the acreage discussion all the more important.

There was a small amount of feed rationing that showed up using the data in the grain stocks report. This enabled the USDA to lower feed use in the supply and demand tables. Now feed use is estimated at 5.975 billion bushels, down 166 million bushels from last year. Given the supply of DDG's and the economics of livestock and poultry feeding, this reduction is not extreme.

The amount of corn for ethanol production has not changed for a long time in the supply/demand tables. The USDA is supposedly examining their assumptions for this demand category, but it may not release anything until their annual Outlook Conference. This year, it is appropriately titled "Agriculture at the Crossroads: Energy, Farm and Rural Policy" and is scheduled for March 1st and 2nd.

Those analysts who seem to be in the more bullish camp have corn for ethanol use increasing one billion bushels or more for the 2007-08 and 2008-09 crop years. With this type of growth, ending stocks pretty much stay the same or decline slightly. A crop size of 12.5 billion bushels for 2007 is almost a requirement under this scenario.

Analysts who construct a less bullish supply/demand table typically only have corn for ethanol use going up by 600 million bushels or so per year. The 2007 crop size can be a little smaller and/or carryouts actually grow to one billion bushels or so. With the list of ethanol plants under construction, this slow growth seems unrealistic unless the economics of ethanol production go immediately and persistently unprofitable.

The corn market has been spending the past week getting used to the tight supply/demand situation presented in the January USDA reports.